Throughout the U.S., average home values were down in the month of October 2011
Arizona Homeowners, Take What You Will from National Reports
Yesterday, the findings in the Case-Shiller Index report were substantiated by the government: throughout the U.S., average home values were down in the month of October.
The Federal Home Finance Agency’s (FHFA) Home Price Index (HPI) reveals that home values have slipped 0.2%. This is the second time since April that home values have depreciated.
In the month of September and October, the Case-Shiller Index 20-City Composite registered a decline of 0.7%.
Arizona homeowners may infer from the data that the housing industry is not looking up. This may be a true indication in the long run. That said, for us to make an informed conclusion, we have to factor in the index’s weaknesses.
In total, there are three weaknesses and they cannot be ignored. As we take an in-depth look at them, it becomes increasingly evident that the HPI may not be of much relevance to home purchasers and owners in states such as Alhambra.
First of all, the HPI only takes into consideration the values of the homes that have Fannie Mae or Freddie Mac mortgages. Homes with FHA approved mortgages are not considered.
Four years ago, this would not have impacted the findings. That is because the FHA only accounted for 4% of the existing homes. This year, this number has grown exponentially, and FHA covers more than one-third of all homes. This is a sizable number of homes, and all of which are left out in the HPI.
Next weakness of the HPI is that it does not include new home sales and cash purchases; only home resales with mortgages are surveyed in the index. New home sales is a burgeoning category, and cash sales reached 29% in October this year.
The last weakness is that the HPI has a buffer time of two months. The latest report, published in December, reveals findings for the month of October. We’re already approaching the New Year, and industry trends are slated for change. Existing Home Sales and New Home Sales are on the ascent, Housing Starts show favorable numbers and homebuilders are positive the market is looking up. To round things off, the Pending Home Sales Index indicates the year will end off on a strong note.
All in all, the HPI fails to factor in these trends, and instead reports on past industry performance.
Therefore, home buyers or sellers in Arizona should consult their property agent to get timely and more accurate information.
Its last peak was registered in April 2007, and this month the HPI is off by 18.3%.
December 29, 2011 by Eddie Knoell · Leave a Comment
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